Fed governor Lisa Cook sues Trump to block effort to remove her

Federal Reserve governor Lisa Cook on Thursday sued to block President Donald Trump’s attempt to oust her from office, setting up a legal clash that could determine the Fed’s ability to continue operating outside White House control.

In her complaint, Cook asked the U.S. District Court in Washington to issue an injunction to block the dismissal, which her lawsuit characterized as “unprecedented and illegal.” She also stated the allegations of mortgage fraud cited by the White House fall short of the legal standard for her removal.

The Fed was designed to be insulated from political pressures, and Cook argues a president’s ability to dismiss a sitting governor over allegations of misconduct from before her tenure in government would effectively eliminate those protections.

“An independent Federal Reserve is essential for a stable economy, as the short-term political interests of a president often clash with sound monetary policy,” her complaint said.

The Trump administration has accused Cook of making false statements on mortgage applications within a two-week period of 2021 in connection with a home in Michigan and a condominium in Georgia. The applications were made before President Joe Biden nominated her to the Fed. Cook has yet to respond substantively to the allegations. The Justice Department says it has opened an investigation into the matter, but no charges have been filed publicly.

Bill Pulte, the head of the Federal Housing Finance Agency who first raised the accusations against Cook, wrote on X shortly after the filing that “there is new info we are learning about her deceitfulness while in office.”

On Wednesday, White House economic adviser Kevin Hassett defended Trump’s bid to remove Cook, saying the president has authority to fire her “for cause” and that the allegations she faces are serious. Hassett suggested Cook should take a leave of absence while the matter is investigated by the Justice Department, adding that her refusal to step aside shows she is “making a partisan stance contrary to the independence of the Fed.”

Cook’s lawsuit raises unresolved questions about what qualifies as sufficient cause to remove a Fed governor - including whether the conduct must be job related, whether the president alone can make that call, and whether removal is permissible for actions that predate an official’s tenure and have not resulted in criminal charges or a conviction. The legal terrain is largely untested: Attempts to oust leaders of independent agencies for cause have been rare, and until this week, no president had ever tried to remove a sitting Fed governor.

Some legal experts agreed “for cause” can be an expansive term, but it typically involves some form of negligence or malpractice while in office. They note a distinction between mere allegations of misconduct and a finding of wrongdoing in a forum where the accused has an opportunity to hear and respond to allegations.

Cook’s challenge emphasizes this point, stating, “The unsubstantiated mortgage fraud allegations that allegedly occurred prior to Governor Cook’s Senate confirmation do not amount to ‘inefficiency, neglect of duty or malfeasance in office,’ nor has the president alleged that they do.”

Cook is asking a court to let her remain on the Fed’s seven-member board while her case moves forward. Her complaint also names the Federal Reserve as a defendant, since the central bank and the White House are the only organizations that could prevent her from carrying out her duties. Similarly, Fed Chair Jerome H. Powell is also named as a defendant.

The Fed declined to comment on the lawsuit but said earlier in the week it would abide by any court order. Trump said he would also abide by court rulings. The Fed has deferred any decision on Cook’s status as a sitting governor until a court rules on the request for an injunction.

The issue of whether Cook can still serve while litigation continues could reach the Supreme Court in the coming weeks, adding another layer of uncertainty. While the justices have often granted Trump broad leeway on executive power during his second term, they have also recognized the Fed’s distinctive independence and statutory protections - safeguards that set it apart from other federal agencies.

The president’s view - that an accusation of mortgage fraud alone justifies removing her - is “an ahistorical interpretation of ‘for cause,’” said Jane Manners, a law professor at Fordham University. “It’s not just a fig leaf for ‘at will’ removal, or removal for any reason or no reason.”

The White House says the president exercised his lawful authority to remove Cook. “The President determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions,” said Kush Desai, an administration spokesman.

The stakes in Cook’s lawsuit are high for markets and the economy: Any hint of political encroachment on the central bank’s ability to set interest rates can unsettle investors and complicate the Fed’s ability to set policy free of outside pressure. Stocks were mixed early Thursday, with major indexes essentially flat.

Some legal experts said it is an open question whether the case will escalate to the Supreme Court. David Bernstein, an expert on constitutional law at the Antonin Scalia Law School at George Mason University, said the justices might prefer to not hear the case - many of them probably think independent agencies are unconstitutional, but they don’t want to see the Fed lose its independence. They also might not want to revisit existing law through this specific case.

And if the court did take the case, it might write a narrow opinion, perhaps saying Cook’s case is a rare case about “cause” and doesn’t need to go further.

Jaret Seiberg, managing director at TD Cowen, said Cook is likely to win at the district court level, given a recent Supreme Court decision limiting the president’s ability to fire Fed officials. In an analyst note, Seiberg said that would probably mean Cook gets to keep her position on the Fed and take part in the September policy meeting as the litigation continues.

But it’s unclear, Seiberg wrote, what will happen as the case advances through the legal system.

Cook has not yet responded to the allegations of misconduct. Kathryn Judge, a law professor at Columbia University, said that carries little legal weight. At this stage, she added, it is wiser not to get drawn into a back-and-forth over the details. The bigger issues, she said, are that allegations alone should not justify removal and that Cook is entitled to basic due process protections.

“Mere allegations alone should never suffice to justify a removal without due process,” Judge said.

The Trump administration has stepped up daily pressure on the Fed to slash interest rates, both to juice the economy in the short term and to help finance-swelling federal deficits. Fed officials have been cautious, wary of repeating their slow response to the post-pandemic surge that pushed inflation well above the central bank’s 2 percent target. Inflation hasn’t been below that mark since early 2021, remains slightly elevated now and is widely expected by economists to climb above 3 percent later this year.

While the Fed is already leaning toward a cut to its benchmark rate as soon as next month, a fight over its leadership could rattle investors and over time push up long-term borrowing costs - making mortgages and other loans more expensive for households and businesses. So far, though, the markets have largely shrugged off the fight over Cook’s seat.

In targeting Cook, Trump has signaled he is looking to open more vacancies on the Fed board, accelerating the point at which Trump-aligned governors could hold a majority. An earlier-than-expected vacancy arose this month when one of the governors, Adriana Kugler, announced her resignation. Trump said he was “very happy” about the opening and quickly appointed Stephen Miran, the head of the White House Council of Economic Advisers, as a replacement until the end of January, when Kugler’s term had been set to expire.

If Cook is replaced and Miran confirmed, Trump could gain a majority of governors pushing for rate cuts; two of his first-term appointees have already signaled support for lower rates. Removing Cook would also make it easier for the president to install more administration-friendly heads of the 12 regional Fed banks, who vote on interest rates. All the Fed bank presidents are up for renewal in February, a process requiring board approval.

“We’ll have a majority very shortly,” Trump said earlier this week.

A new Pew Research survey highlights Americans’ mixed views of federal agencies, with the Federal Reserve earning middling but net-positive marks from the public. Nearly half of adults say they have a favorable opinion of the Fed, compared with 28 percent who view it unfavorably and 23 percent who are unsure.

That puts the central bank roughly in the middle of the rankings - well behind the broadly popular National Park Service (76 percent) and the U.S. Postal Service (69 percent), but ahead of more polarizing agencies like Immigration and Customs Enforcement (40 percent favorable) and the IRS (36 percent). Partisan divides were stark: Roughly 60 percent of Democrats hold a positive view of the Fed, compared with just 41 percent of Republicans, mirroring the broader political split in confidence across Washington institutions.